When China, the world’s second-largest economy, announced its new cybersecurity law that is anticipated to take effect this June, businesses across the world became skeptical about the future of their procurement decisions and strategies. Procurement market intelligence firm SpendEdge believes businesses will need to develop new strategies to work around these new rules in order to avoid increased costs and exposure of sensitive data.
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Will the new cybersecurity law require companies to give up intellectual property in return for market access in China?
Foreign businesses are worried that they will have to share their source code or give up intellectual property to do business in China’s market. This law will require the procurement of all network products, equipment, software, and services for “critical information infrastructure facilities”, including facilities in the medical/healthcare, energy, water, gas, and transportation industries, in addition to financial institutions, banking services, and social security facilities in China, to first pass a security assessment and receive government certifications.
In addition, China’s new cybersecurity law will affect overseas businesses that operate within the country. Many concerned businesses say that the law will force them to reveal trade secrets and technical specifics about their products to Chinese authorities, and allege that there is too great a risk of this information being passed on to or intercepted by Chinese competitors, increasing market competition and the threat of counterfeit products and software.
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Although Zhao Zeliang, a director at the Cyberspace Administration of China, confirms that every article in the law complies with the rules of international trade and China’s businesses with foreign companies will continue, it has negative ramifications on international trade and market competition. Procurement market intelligence experts at SpendEdge do foresee this law to have a very negative effect on the ability of foreign companies to successfully compete with Chinese companies both within China and across the globe, compelling them to re-evaluate and adjust their procurement solutions, plans, and strategies. They believe the law will have a massive impact on smaller companies who will find it extremely tough to survive in the market.
Unfortunately, there isn’t much that companies can do to combat the effects of this law. Companies will have to adapt to the new regulations and procedures that come with this law without a doubt, as China, unlike the stagnant markets in Europe and the US, has a great potential for future growth.
If your organization will be affected by these changes or is facing any type of procurement challenge, contact us to learn about our solutions on how we help clients tackle such business challenges by closely monitoring market conditions for improved supply chain strategies.
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